Scrutiny Rises Over Carbon-Offset Sales Process

The government is scrutinizing the market for global-warming-emission offsets, part of a backlash against the market that could increase industry’s costs in complying with any new environmental rules. Offsets are pieces of paper said to represent global-warming emissions avoided somewhere else on the planet. The offsets are being bought by the likes of corporations that want to project an environmentally friendly image and consumers who want to make their airplane flights “carbon neutral.”Even though the U.S. hasn’t imposed a limit on global-warming emissions, purchases of these voluntary offsets have soared over the past two years. So have questions about whether the money is funding real emission cuts or not.The offsets are said to represent emissions avoided through projects such as installing wind turbines or planting trees, often in the developing world. Consumers are buying the offsets from a bevy of online sellers to counteract the emissions produced by daily activities.But Federal Trade Commission officials said at a workshop on the issue that they are concerned that consumers who buy carbon offsets aren’t able to verify whether they are environmentally legitimate.

The FTC watches for deceptive trade practices and can bring suits against those who violate commission rules. The commission long has issued guidelines about what environmental claims companies may make, such as for recycling. Those Green Guides were due to be updated next year, but the commission moved up the review because of the recent surge in green marketing. As part of the review, the FTC is focusing on emission offsets, which essentially didn’t exist when it last updated the guidelines, in 1998.Voluntary carbon offsets typically sell for as little as $5. Each offset represents one ton of carbon dioxide said to be kept out of the atmosphere. The businesses are betting that the relatively cheap voluntary offsets they buy up now will count toward their cleanup obligation under any eventual rule. That is far cheaper for most companies than retooling their operations to curb their own emissions.The voluntary carbon offsets at issue in the U.S. differ from the pollution permits traded under the Kyoto Protocol, the international global-warming treaty. The legitimacy of those permits is regulated by a panel of United Nations-sanctioned officials. The market for voluntary credits has no mandatory oversight.The market for regulated-emission permits tripled in 2006, to about $30 billion, according to the World Bank. The voluntary market is a fraction of that size. Yet it, too, is growing fast. It shot up to $91 million in 2006, estimated a recent report from research firms Ecosystem Marketplace and New Energy Finance.

The FTC is only beginning to look at the issue. But it’s the latest government entity to raise questions about the market for a commodity that essentially didn’t exist until a few years ago.

In Europe, which began capping carbon emissions in 2005 and now is toughening those rules, regulators are considering tighter limits on companies’ ability to use cheap carbon offsets generated in other countries to minimize their compliance costs. In Congress, where proposals are being debated to limit global-warming emissions from the U.S., several lawmakers have proposed similar moves.

Robert Maddox, director of the utility program at Sterling Planet, a large retailer of carbon offsets, said he believes existing market standards are sufficient. “If it becomes too regimented or cost-prohibitive, it could stunt this evolving market.”